The East Asian experience[1]
Kim Them Do
Notes: This paper would be updated in the near future. The latest success story of the introduction of Competition Law in Singapour is impressive.
Whatever their underlying motivations, it is hard to appreciate how the adoption of this discipline could play a crucially contributory role in promoting economic development in developing countries because there is no mono causal connection between these variables and there are multiple interdependences between the two objectives. The East Asian economic development success story provided no sufficient evidence for such a positive in past economic development literature.
Generally, scholars on East-Asian competition law and policy claim that this past success story does not provide the best lesson for countries in transition.[1] During the post-war reconstruction period Japan[2] and Korea[3] did not have maximum level of competition in their domestic markets. On the contrary, they reached an optimal degree of broadly-based cooperation by their domestic firms for their export strategy.[4] The interventionist influences of Japan’s politics in its domestic industrial structure are powerful enough to form domestic cartels that become a best financial resource to fund foreign investment strategy and a key driver of competition and development.[5] The special relationship between government, business, banking and finance is not unique; it is a typical feature of crony capitalism in East Asian politics.[6]
Korea enacted competition law in 1980[7] and experience[8] indicates that failure to introduce competition law and policy at a sufficiently early stage of the development process necessitates readjustment of industrial policy later on. Certainly, these corrective measures are inevitably costly. If competition law and policy were to be timely introduced in the course of this regulatory reform process, the rising costs of adjustment measures may be saved and economic achievements may be better balanced.
This lesson is significant for the policy makers of countries in transition, who need to consider how and when best to adopt this legislation.[9] More significantly, this East-Asian economic wonder does not permit domestic firms to prevent the risk of unemployment and the failure of firms as many policy makers presumed. This needs to be explored thoroughly in future literature.[10]
In order to better appreciate the past economic performance of China[11] and Vietnam[12] we should pay more attention to their distinct particularities than to general theoretical considerations. Focusing solely on an export-oriented policy, China has increased the international competitiveness of state firms and promoted economic development with the support of various measures rather than with comprehensive competition law and policy.
Empirical research finds that industrial policy is a central part of development strategy in China and that it has undergone three stages of development:
(1) from the late 1970s to the mid- 1980s, it promoted competition,
(2) from the mid-1980s, it limited competition and
(3) since the mid-1990s it has both promoted and limited competition.[13] China has made huge economic advances over the past time without the support of a competition law because the Antimonopoly Law became effective on 1 August 2008.[14]
That is the same case of Vietnam where the economic reforms were launched since 1986.[15] A central feature of these reforms has been greater reliance on market forces; a competition law and policy was apparently less significant than a foreign trade policy. Vietnam has changed rapidly in the past 10 years; its economic growth is still growing at 7 percent a year and owes a good deal with the thawing of its relations with the US in putting a lot of efforts of trade and investment links.[16]
Viewing from this perspective, there is no starting point for us to discuss a question whether a competition law and policy would benefit the whole of the society because a Vietnamese law on competition was entered into force on 1 July 2005. The good intention of Vietnamese late reformers in enacting competition law has been seriously undermined by factors such as its ineffective enforcement, lack of human capacity and political dependence of the competition authority.[17]
Apart from arguments regarding the desirable enforceability of law; there is a fundamental question raised in this context: China and Vietnam are driving toward what they call a ‘socialist oriented market economy’. As a result, economic liberalization has been accompanied by gradual political loosening. Other scholars, especially with political theory, are debating how China and Vietnam can best use the competition law and policy to preserve the foundations of free competition without political democracy.[18]
This debate seems much complicated in view of the operation of free market economy. Inevitably, there are a lot of constraints for them to apply law accordingly: the dominant role of the state enterprise, a heavy government intervention in trade policy and lack of political support for competition culture. The goal of creating a healthy competition policy under state guidance is highly controversial. China and Vietnam are currently seeking a path that away from dogmatically conservative and liberal views in favor of something more pragmatic and moderate.[19] The search for the proper balance between state-led and market-led solutions in this context remains a challenge. Shared assumptions in the literature tell us that they require a clear, effective and authoritative competition law and policy.[20] This appears to be particularly true.
From the perspective of free trade policy and its purposes, policy makers in Singapore[21] and Hong Kong[22] have argued that there is no need for them to introduce competition legislation because their innovative business environments have been best assisted by a broader public policy mix and they are open economies with a strong investment policy. Hong Kong is a small and externally oriented economy and the free trade policy is competitive for goods and services.
Hong Kong has adopted general laws of competition on 20 March 2007 and is going to bring such a law forward. It is expected that a law will take effect in the near future.[23] In the context of free trade negotiation with the US, Singapore has committed not to discriminate against US firms and adopted competition law in 2004 as a part of free trade agreements with the US.[24] As a result, competition culture comes to be affirmed as an emerging value to permeate into social life.
In brief, under these circumstances, competition law and policy should not appear to be their main policy consideration. These countries are relatively new members of the competition law community, it is clear that there is a little experience of the law.
1]The classic reference here is World Bank, ‘The East Asian Miracle: Economic Growth and Public Policy’, (Oxford: Oxford University Press, 1993); for a general discussion on competition policy see Khermani & Meyerman, ’East Asian’s Economic Crisis and Competition Policy’ in: Global Competition Review (Aus- Sept 1999) p.10-17; for a good overview of the current regulatory development see Furse ‘Antitrust Law in China, Korea and Vietnam’ (Oxford: Oxford University Press, 2010)
[2]Japan forced mergers in a variety of industries and encouraged formation of cartels. Cartels existed mainly in the form of the legally recognized horizontal Keiretsu, normally centered on one bank and trading company. The term Keiretsu refers to a set of companies with interlocking business relationships and shareholdings, see Mehta & Chakravarthy, as note 4 above, p. 19; UNCTAD 2009 as note 4 above, p. 10.
[3] See Furse, as note 73 above, p.215; Seon Hur, ‘The Evolution of Competition and its Impacts on Economic Developments in Korea’ in Cernat & Holmes, as note 4 above, p. 235-249, 2004; Mehta & Chakravarthy, as note 4 above, p. 12; UNCTAD 2009 as note 4 above, p. 10
[4] See source cited note 73 above
[5] The objective in encouraging collusion was to make Japan more competitive in the international market, see Mehta & Chakravarthy, as note 4 above, p. 19; UNCTAD 2009 as note 4 above, p. 10.
[6] Beresford distinguished alliance capitalism and cronyism. Both are two sides of the same coin, but the latter has primarily political rationale which associates with the goal of regime maintenance. Close relationships between business and government are more personalised than in the case of alliance capitalism. Vietnam is degenerating into cronyism; on the contrary, South Korea and Taiwan are satisfying the changing aspirations of their expanding educated middle classes, see Beresford, ‘Doi Moi in Review: The Challenges of Building Market Socialism in Vietnam’, Journal of Contemporary Asia, Vol. 28 No. 2 May 2008 p. 221-243 with further reference.
[7] The Monopoly Regulation and Fair Trade Act (MRFTA) have been enacted on 31 December 1980, entered in force on 1 April 1981. To date, this Act has been amended on over ten occasions. For an good overview see Furse, as note 73 above, p. 215
[8] See Contribution of the Republic of Korea to the WTO Working Group Trade and Competition Policy (WGTCP) W. 56 para. 13; Contribution of the Republic of Korea, DAF/COMP/GF/WD (2009) 26 OECD, 16 January 2009.
[9] See Brooks, as note 17 above p. 6-7.
[10]See Khermani & Meyerman as note 73 above.
[11] See Mehta & Chakravarthy, as note 4 above, p. 14 discussing that China created the so-called ‘national champions’ in selected strategic areas such as electricity generation, coal mining, automobiles, iron and steel and the like; see also Furse, as note 73 above, p. 67.
[12] See generally Beresford as note 79 above.
[13] Jiang X, ‘Promoting competition and maintaining monopoly: Dual functions of Chinese industrial policies during economic transition’ Washington University Global Studies Law Review, 149-69, available at http://www.law.wustl.edu/Publication/WUGSLR/volume_1.html.
[14] See generally Furse as note 73 above, p. 67;Emch & Hao, ‘The New Chinese Anti-Monopoly Law- An Overview’, GCP MAGAZINE 2 (Nov. 2007), available at http://www.globalcompetitionpolicy.org/index.php?id=604&action=907.
[15] See Beresford as note 79 above p. 221.
[16]See http://www.guardian.co.uk/global-development/poverty-matters/2010/dec/23/vietnam-development-middle-income-trap.
[17] See Furse as note 73 above, p. 305; for a critical discussion see also Furse, ‘Competition Law on Vietnam: A Critique’ in World Competition 33 Nr.1, 2010, p. 163-171.
[18] See Do, as note 6 above p. 304, footnote 80 arguing in practice, socialism in China and Vietnam appears as far away as ever.
[19] For further discussion see Beresford as note 79 above, Furse, as note 73 and 90 above.
[20] See Emch & Hao as note 87 above; Furse as note 90 above.
[21] Contribution of Singapore to the WTO Working Group on Trade and Competition Policy WGTCP/W28
[22] Contribution of Hong Kong/ China to the WTO Working Group on Trade and Competition Policy WGTCP/W26; see also APEC_OECD Integrated Checklist on Regulatory Reform: Addressing Regulatory Competition Policy, and Market Openness Policy Issues- Hong Kong, China, 2006/SOM3/EC015, 23; see also Furse as note 73 above, p. 123.
[23] For more on the current development see http://www.cedb.gov.hk
[24] See Evans & Jenny, as note 4 above, p.8; see also http://www.fta.gov.sg/fta/pdf/FTA-ussafta_Agreement_Final.pdf
